Analysts: Keeping Martha Stewart was a must for Kmart

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Posted 2:12PM on Wednesday, January 23, 2002

DETROIT - As Kmart Corp. plans its next steps following its Chapter 11 bankruptcy filing, several analysts say one thing is certain: Keeping Martha Stewart is a must. The Martha Stewart Everyday brand, which covers products such as sheets, towels, paints and kitchenware, is Kmart's largest volume-producing label, generating about $1.5 billion in sales last year. Martha Stewart Living Omnimedia has a provision in its contract that allows Stewart to leave Kmart in bankruptcy, but it would have to be approved by a bankruptcy judge. "She becomes somewhat of a free agent, so that is definitely a concern," said Eric Beder, an analyst with Ladenburg, Thalmann & Co. Inc. "Without Martha Stewart, that would be a huge loss to the company." "We remain optimistic that Kmart, our longtime domestic mass-market merchandising retail partner, will ultimately emerge from this situation as a stronger, more competitive company in keeping with its proud heritage," Stewart said in a statement. "Going forward, Kmart will continue to sell Martha Stewart Everyday brand products under the terms of our contract for the foreseeable future." Stewart said Kmart had a number of outstanding payment obligations to her company at the time of Tuesday's filing. "The amount we ultimately realize from these payment obligations cannot currently be determined," she said. "However, we believe that Kmart values its relationship with MSO and expect that Kmart will take steps to ensure that we receive payment as fully and promptly as possible." Beder and others say retaining those brands that are exclusive to Kmart, including Martha Stewart, are key to keeping customers. "What makes people come to your store ... is the type of merchandise that you yourself have exclusively," said Ulysses A. Yannas, an analyst with Buckman, Buckman & Reid. Martha Stewart brands give Kmart an edge over other discount retailers, Yannas said. "When you have Martha Stewart in the bedroom and in the bathroom area, you really don't need to compete with the Wal-Marts and the Targets, because they're not especially strong in that area. You compete with the Bed, Bath and Beyond" and similar stores, Yannas said. But some said Kmart can't rely solely on Martha Stewart. William A. Brandt Jr., president and CEO of Development Specialists Inc., said Kmart must get its brand-name niche in order. "Their desire to keep Martha Stewart, which is a good brand, shouldn't be looked at in a vacuum," Brandt said. Kmart also carries Sesame Street and Disney brands, but analysts have said the company needs to do more to make sure customers associate those brands with the Troy-based discount retailer. As much as Kmart might need Martha Stewart, some said she also needs them and is unlikely to leave. "Considering how much sales she gets at Kmart ... I don't think she can easily do without for any period of time," Yannas said. Stewart is now likely to get the more aggressive advertising and better in-store displays that she has been asking for, Yannas said. He said Kmart could survive without Stewart, but not as easily. "It's not a do or die for Kmart," he said. "The other side of the coin is it's a great door-opener and customer draw."